50 Pages Posted: 18 Dec 2009 Last revised: 30 Sep 2013
Date Written: September 30, 2013
Recent accounting research provides evidence that similar profit-based compensation incentives are used in for-profit and nonprofit hospitals. Because charity care reduces profits, such incentives should lead for-profit hospital managers to reduce charity care levels. Nonprofit hospital managers, however, may respond differently to the same incentives because they face a different set of institutional pressures and constraints. We compare the association between pay-for-performance incentives and charity care in for-profit and nonprofit hospitals. We find a negative and significant association between charity care and our proxy for profit-based incentives in for-profit hospitals and no significant association in nonprofit hospitals. The evidence in the nonprofit sample that profit-based incentives have no significant effect on charity care levels suggests that institutional differences inherent in the nonprofit setting mitigate the negative effect of profit-based incentives on charity care.
Keywords: Nonprofit hospitals, charity care, ownership structure, profit-based incentives
JEL Classification: I18, J33, L33, M40
Suggested Citation: Suggested Citation
Eldenburg, Leslie and Gaertner, Fabio B. and Goodman, Theodore H., The Influence of Ownership and Compensation Practices on Charitable Activities (September 30, 2013). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1523971 or http://dx.doi.org/10.2139/ssrn.1523971